ZF Group (China) FY2005-FY2006

Business Highlights

<Outline>
- ZF tapped the Chinese market in conjunction with VW's move into the
industry. ZF has steadily expanded its operations in China since 1994,
when it created its first joint venture company in Shanghai. In 2005,
the Company greatly accelerated its business activities in the country
by building new plants for its five operating segments, respectively;
namely driveline systems, powertrain and suspension systems, chassis systems,
rubber metal products, and steering systems. ZF also set up joint venture
companies in partnership with Dongfeng Motor Group and the China National
Heavy Duty Truck Group. Establishing these is expected to strengthen ZF's
production structure in the area of commercial vehicle parts.

<Highlights by Each Segment>
Driveline Systems :

ZF Drivetech (Hangzhou) Co.,
Ltd.
- In June 2006, ZF Drivetech (Hangzhou) Co., Ltd. launched commercial
production in the Xiaoshan Economic & Technological Development Zone,
Sushan, Hangzhou, Zhejiang. The wholly owned subsidiary was established
in November 2005 in order to assemble and sell transmission systems for
heavy-duty commercial vehicles of 16 tons or more.
- In 2006, the subsidiary began producing
ZF Ecosplit Classic Line 16-speed transmission systems using knock-down
kits.

ZF Transmission Shanghai Co., Ltd.
- In September 2006, ZF Transmission Shanghai Co., Ltd. officially became
operational. The joint venture was established in 2004 between the ZF
Group and Shanghai Automotive. The manufacturing equipment used in the
new facility was transferred from the Group's transmission assembling
lines in Saarbrucken, Germany. China's first 5-speed manual assembly
system built at ZF Transmission Shanghai was delivered to and tested
at Shanghai GM. ZF Transmission Shanghai will initially manufacture
50,000 sets of 5-speed transmissions annually. A new production line
for 6-speed transmissions will soon be completed.

Powertrain and Suspension Products (ZF Sachs)
:

ZF Sachs AG and Dongfeng
Shock Absorber Co., Ltd.
- In June 2005, ZF Sachs AG and Dongfeng Shock Absorber Co., Ltd. jointly
established ZF Dongfeng Shock Absorber Shiyan Co. Ltd. to manufacture
shock absorbers for commercial vehicles made by Dongfeng and other automakers.
With a total investment of 1.5 million euros, ZF has a 51 percent share,
and Dongfeng Shock Absorber holds the remaining 49 percent of the joint
enterprise. Annual production volume is expected to reach one million
units by 2008.

Chassis Products (ZF Lemforder) :

ZF Lemforder Shanghai Chassistech
Co., Ltd.
- In May 2005, ZF Lemforder Shanghai Chassistech Co., Ltd. held a groundbreaking
ceremony at its plant site in the Shanghai Fengpu Industrial Park. The
new joint venture company established between ZF Lemforder (owning a 51
percent stake) and Shanghai Motor Vehicle & Auto Parts Co.,Ltd. (owning
the remaining 49 percent stake) will manufacture chassis parts such as
tie rods, suspension joints, and control arms. The planned amount of investment
in this company is 20 million dollars. The facility is due to be completed
in 2008, and is expected to generate annually sales of 800 billion yuan
when it becomes operational.

ZF FAWER Chassis Technology Co. Ltd.
- ZF FAWER Chassis Technology Co. Ltd. held a ceremony to celebrate
the completion of its manufacturing facility in July 2005. ZF FAWER Chassis
Technology was established in Changchun City in 2003; it was created jointly
by ZF Lemforder Metalwaren AG and Fawer Automotive Parts Co., Ltd., which
supplies a wide range of car parts under the FAW Group. The joint venture
company focuses on the production of front and rear axle modules for passenger
vehicles; suspension parts for commercial and passenger cars; and steering
linkages and other chassis parts. Planned amount of annual production
is 50,000 front and rear axle modules for passenger vehicles; 83,000 suspension
links for commercial vehicles; and 82,000 steering linkages.
- In 2006, the subsidiary enjoyed strong sales of its front/rear axle
modules used in the FAW-VW Audi A6L. Unit sales of these axle modules,
which were launched in 2005, exceeded the targeted 45,000 sets.

Rubber Metal Products (ZF Bode Elastmetall)
:

Shanghai ZF Zhongding NVH
Co.,Ltd. - In May 2005, ZF Boge Elastmetall and Anhui NingguoZhongding
Co., Ltd. jointly established Shanghai ZF Zhongding NVH Co.,Ltd. to manufacture
rubber-metal components to reduce noise and vibration in the chassis and
driveline systems. Having registered capital of 80 million yuan, the new
joint venture company is owned 51 percent by ZF Boge Elastmetal, 44 percent
by Anhui NingguoZhongding Co., Ltd., and 5 percent by Shanghai Huizhong
Economic Development Co., Ltd. Shanghai ZF Zhongding NVH has two production
facilities: one in the Qingpu Industrial Zone, Shanghai; and the
another in Ningguo,Anhui Province.

Steering Systems (ZF Lenksysteme) :

ZF Commercial Vehicle Steering (Shandong)
Co., Ltd.
- ZF Commercial Vehicle Steering (Shandong) Co., Ltd., which is a joint
venture company established between ZF Lenksysteme and China National
Heavy Duty Truck Group in 2005, officially became operational in November
2006. The joint venture corporation manufactures mainly steering systems
and related components for commercial vehicles in the Jinan Economic
Development Zone. A total investment of 17.58 million dollars is planned
for the first phase of the plant construction. Establishing this company
is expected to help the Jinan Economic Development Zone become the country's
largest supply hub of steering systems in the next three to five years.

R&D

- The Company
's R&D activities are mainly conducted at the Shanghai Technical Center,
which was established in 2004. In order to strengthen its development capacity
to support the growing China market, the Company will increase its
headcount at the facility which totaled 20, as of December 2006, to 70 by
2010.